Abstract: Over the past 20 years, trade agreements among nations have gone beyond tariff and other border barrier reductions to agreement on domestic rules of the game – intellectual property rights, product standards, internal competition policy, government procurement and, to a lesser degree, labor and environmental standards. These more complex agreements bring deeper integration among participating nations – integration not only in the production of goods and services but also in standards and other domestic policies. As a result they imply many more trade-offs and raise new issues concerning the sharing of the gains from trade – which nations benefit and within nations, which groups benefit.This chapter explores the costs and benefits for developing countries of the “deep integration” that characterizes international trade relations today – what we will also refer to as “modern trade,” often associated with membership in a “modern trade club” e.g., multilaterally in the World Trade Organization (WTO) or regionally in the North American Free Trade Agreement (NAFTA), Asia–Pacific Economic Cooperation (APEC) or the South American Common Market (Mercosur). We put particular emphasis on developing countries because the income gap between them and the highly industrialized nations suggests that the pressures for harmonization that modern trade and modern trade clubs bring raise particularly interesting questions for them, and thus, ultimately for global welfare. In the first section, we discuss how the trend toward deep integration has ended the special treatment of developing countries in postwar trade agreements. Then we discuss how the modern multilateral character of trade agreements, by increasing the overall efficiency of world trading markets, can generate benefits at the global level, some of which are particularly relevant to developing countries. In the third section, we consider additional benefits that are specific to developing countries as a result of their participation. After that we explore the potential costs that face developing countries with the trend toward common rules. Following a brief aside on regional trade agreements for developing countries, we conclude with reflections on the political challenges to the international community and to governments posed by the ongoing negotiation of global trading rules.

Keywords: deep integration, global public goods, government procurement, intellectual property rights, internal competition policy, product standards, welfare gains from trade,